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Entries Tagged as 'Lease Negotiations'

How long of an office lease should I sign?

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It all depends on your business and your office market.  Obviously now with it being an office tenant's market, the longer you lock in lower rents the better.  However, if rents increase upon a recovery and it becomes a landlord's market you will be faced with increases upon renewal or expiration; which emphasizes the need for regular review of you lease vs the market.  You may want to negotiate a stabilized rent in year 3 of a 5 year lease in exchange for an additional 3 years which extends the lease at the lower rent and gives the landlord a tenant in the space for a longer period.
If an office tenant is in an industry which is growing they may be better off with subleases or shorter term leases, say 2 to 3 years.  A business who grows steadily needs to time their expirations with their anticipated growth. 
If an office tenant's business is stable and not expected to grow or downsize significantly, then they may be better off negotiating a lower rent for a little more space and locking in the low rents now providing it is a tenant's market where they are.  Despite the economy, here in St. Louis we have one submarket with about a 4% vacancy and space is on the market an average of 7.3 months vs. some submarkets with double digit vacancies or availability and space on the market for over 25 months on average.
The tenant's amount of capital costs also will have a bearing on their length of lease.  They can amortize more improvements over a longer term.  That being said, they may also be able to get a longer term and lock in the lower rate if the landlord is able to amortize their capital costs over a longer period.
You should also consider the building condition. If  a building is a class B now, what is it going to be like in 5, 7 or 10 years.  If you are going into older buildings perhaps the term should be shorter so that if the building systems become antiquated or irreparable due to lack of available parts for old systems, do you want your clients and/or employees to have to work or visit an uncomfortable space?
Another thing that brokers can do is ask the listing agent how the buildings lease expiration stacking is.  Is it important to the landlord to stagger lease expirations so that they do not have say more than 8 to 10% of the building up for expiration at any given time?  Do they look at their expiration plan on a floor by floor basis to see how expirations are contiguous thus giving the landlord a more marketable space?  Perhaps a 4 or 6 or 8  year lease would assist the landlord in achieving their lease expiration stacking and staggering goals.  Working for a win/win situation like that may get the tenant an extra $1.00 off their rental rate and if an odd length lease term is of no consequence for them it does not matter.
Lastly, what are the lengths of the contracts the tenant has.  Do they have several long term contracts or several contracts expiring in a given year [mostly found with government or manufacturing, etc].  If they have 50% of their client contracts expiring in 3 years they may want to time a lease expiration to after those contracts are negotiated and negotiate strong renewal options in the lease.  They do not want to be busy with renewing client contracts while they have to search the market or negotiate a lease, yet they also do not want to have a long obligation beyond the major contracts in the event they are not renewed.
Lease Negotiations , Office Space , Office Space Negotiations , Tenant Representation

National Office Vacancy at 15.2% and rising

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A recent article in the Wall Street Journal reports that office vacancy has reached 15.2% and is expected to continue rising to 19.3% over the next year. The data comes from REIS, Inc a provider of commercial real estate performance and analysis data for over 25 years. Over 25 million square feet were returned to the market in the first quarter of 2009 driving vacancy rates up and rents down. "Effective rents, which include free rent and other landlord concessions, fell 2% in the first quarter to a national average of $24.16, the largest drop since the first quarter of 2002, according to REIS. Sublet space, on average, is going for between 10% and 15% less than what landlords are charging."

It is a great market for tenant looking for space or renewing during the next 12 months.  Smart Landlords cutting deals to keep their buildings full during this downturn providing tenants a great opportunity.

Markets such as Houston and Washington DC, with less exposure to financial services, is weathering the downturn better than others like New York City. The vacancy rate in New York increased two percentage points in one quarter, from 8% to 10.2% and rents dropped over 5% to $52.00 per square foot, still over double the national average.

How can you, as a tenant, take advantage of this opportunity? Make sure you get professional assistance. OfficeFinder tenant representative specialists can provide you the answers to your questions and help you find and negotiate (or re-negotiate) a great deal. There is no obligation to contact them and there is usually no cost to you for their services. Request a contact.

Houston Office Space , Lease Negotiations , Manhattan Office Space , Office Relocation , Office Space , Tenant Representation , Washington DC Office Space

Downtown Chicago sees an 8% increase in empty offices in last quarter


 According to a recent report by CBRE the amount of empty offices in downtown Chicago took an 8% jump in the first quarter of 2009. The year end 2008 empty office rate for office space in downtown Chicago stood at 12.3%. The 8% jump brings the current office vacancy to 13.3%. They also noted that there was a 40% increase in sublease office space to a total of 3.8 million square feet. Much of the sublease space came from "financial companies, including the collapsed Bear Stearns Cos. and Washington Mutual Inc. JPMorgan Chase & Co. and Bank of America Corp. also resorted to subleases."

As we see unemployment increase we will also see a corresponding increase in the vacancy rate in not only Chicago, but all major markets. The higher the unemployment, the greater the increase in the office vacancy rate in that office space market. This in turn will help turn the office rental rates lower providing better deals for those tenants who are looking for space.

Taking advantage of these opportunities can be tricky, especially if you are considering sublease space.  There are risks involved and it is important that you get professional advice.  A great source is to use a tenant representative; a licensed real estate professional who specializes in office space leasing and sales. They have a fiduciary responsibility to look after your best interest. Avoid using listing agents.  No matter what they tell you, they represent the landlord.  Typically a tenant rep will not cost you anything since they share in commissions offered by the landlord. It is a win-win for you.  Make sure and level the playing field and have an advocate who know the tricks of the trade. They will make sure you not only get great space at the best price, but also avoid potentially business crippling mistakes.

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Chicago Office Space , Lease Negotiations , Office Relocation , Office Space , Tenant Representation

To Guarantee or not to Guarantee a lease?

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I ran into a brief discussion on Twitter as to how to sign a lease (they have to be brief with a 140 character limit). Should you use your company name or personal name on the office lease?  I found these responses at Business Seek, a small business weblog:

"NO you use your tax ID number EIN. You fill paperwork out in name of corp. and you sign as president. Only need to include personal info if you make personal guarantee."

"Any time you do business you HAVE to treat yourself as an employee, you NEVER personally guarantee anything. this way the company goes under you as the President unless gross negligence on your part like you left with the cash are not liable for the expenses of the company. "

Both good advice, but both pretty naive especially when it comes to small businesses. It is unusual when a landlord does not require a personal guarantee no matter what your business structure unless the term is a month to month and there is enough of a deposit to cover any midnight moves. If you were to never personally guarantee a lease or rental for a small business, there would a very limited choice of alternatives.

Trick of the Trade

What we try to do is place a ceiling on that personal guarantee.  An example of this would be to guarantee up to 3 months worth of rental. This would be enough to cover any landlord expenses related to their cost of your acquisition, such as brokerage fees. If there are any significant tenant improvements involved, some sort of amortized guarantee could be created where the amount of the guarantee is reduced over the term of the lease. You'd probably still need to add some period of rent on top of this, but you could also negotiate to amortize reduction in this over the term of the lease. A lease guarantee is a liability that you should show on your personal financial statements. So try to minimize them as much as possible.


General , Lease Negotiations , Office Space , Twitter

Protecting your Business

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I found an interesting article from monitoring my Twitter account, @officefinder, that is important for both office space tenants and office tenant reps to be aware of. While most good office tenant reps, like the ones you will find on OfficeFinder, are aware of the need for protecting the tenant with solid , Non-Disturbance and Attornment office lease clauses, many tenants are clueless. As the economic crisis in commercial properties deepens, which it will, many unsuspecting tenants may find themselves in a pickle.

How to Protect Your Lease So You Don't Risk Loss If Your Landlord Defaults on the Mortgage, And Other Tips to Help Your Business Survive and Thrive During The Current Economic Crisis.

Los Angeles (PRWEB) February 23, 2009 -- Many tenants are facing a huge risk and they don't even know it. If their landlord cannot pay the mortgage, they could face losing their lease, even though they paid their rent. Los Angeles attorney Erin Tenner helps business owners protect their leases from loss due to foreclosure by negotiating agreements with mortgage lenders that will allow the tenant to stay in the property if the landlord defaults on the mortgage.

"The agreement benefits landlords too because it includes a provision allowing the landlord to collect rent directly from the tenant in the event of a default by the landowner" says attorney Tenner. The agreement is known as a Subordination, Non-Disturbance and Attornment Agreement. Without such an agreement any lender who took the land as security for a loan will generally have the right to terminate the lease if the loan pre-dates the lease.

Here are some other recommendations provided by Attorney Tenner to protect business owners during this economic crisis:

1. Protect Your Assets. Whether you are buying an entire business or just a few assets from a business that has folded, make sure you are buying them free and clear of liens and encumbrances, including tax liens. Certain liens will "follow the assets" unless they are released. That means you could lose the assets you bought if the lienholder forecloses. Liens are often public records.

2. Negotiate For Better Terms. A win-win is always possible in negotiations if you find out the needs of the person with whom you are negotiating. Make sure you are dealing with a person who has the authority to make decisions and ask a lot of questions. Especially in times like these, there are many ways to sweeten the pot for yourself and for those you are dealing with.

3. Think Outside The Box. Do not limit yourself to what everyone else does. Think outside the box when it comes to negotiations. For example, if you are asked to provide a personal guaranty, carve out exceptions for your house and your car, limit the length of time the guaranty will continue, or have another entity you own provide the guaranty.

4. Protect Your Corporation's Limited Liability. If you own a corporation, make sure you do not inadvertently destroy the limit on liability provided by the corporate existence. Do not run personal expenses through your corporation. Do not make distributions to shareholders if you do not have the earnings to support it. Make sure that corporate shareholders elect the correct number of directors at least annually and that directors elect officers at least annually. Make sure directors authorize decisions outside the ordinary course of business.

Erin Tenner is a partner at TennerJohnson LLP and a member of the Los Angeles County Bar Association Business Law Section. She can be reached at 818-707-8410 or toll free at 888-501-0040. © Law Offices of Erin K. Tenner, a professional corporation 2009.

General , Lease Negotiations , Office Space , Twitter